NPS May Fall Short For Late Entrants, UPS Shifts Pension Burden To Government: IIM Indore Study
Indore (Madhya Pradesh): India’s pension reforms may have strengthened the government’s fiscal position, but they have also created a fresh dilemma over who ultimately bears the cost of guaranteeing an adequate retirement income, a new study by IIM Indore has found. The study by Prof Deepak Sethia, published in the Review of Income and Wealth, examined the actuarial and fiscal implications of the…
A new IIM Indore study sheds light on the pension reforms' impact, revealing the complexities of guaranteeing adequate retirement incomes for employees who enter the workforce at different ages. The research compares the National Pension System (NPS) and Unified Pension Scheme (UPS), examining how they distribute pension risks and costs.
Prior to the reform, employees on the Old Pension Scheme (OPS) were assured an inflation-indexed pension equivalent to 50% of their final salary. The NPS, introduced in 2004, reduced the government's long-term pension liability by shifting investment and longevity risks to employees. However, the study found the NPS does not provide the same level of retirement security for employees who join government service at ages older than 23, as they have less time to accumulate pension savings.
The UPS, introduced in 2025, aims to address this issue by guaranteeing a pension capped at 50% of an employee's final average salary. The study flags an actuarial fairness issue under the UPS, as employees who enter service at age 26 or younger can accumulate assets that exceed the actuarial cost of their capped pension, which are transferred to a government-managed pooled fund to subsidize late-career entrants.
The researchers suggest further reforms, including raising the Employees' Provident Fund wage ceiling, mandating annuitisation, and providing targeted state contributions for informal workers.
Written by urgent.news from Free Press Journal's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
